WorldCom Inc., which filed the largest U.S. bankruptcy last year, has uncovered $11 billion in overstated profit, $2 billion more than what has been previously disclosed, people familiar with the matter said.
WorldCom, the No. 2 U.S. long-distance telephone company, likely will announce by June that it will restate earnings to reflect the errors, which date back to 1999, people familiar said. WorldCom doesn’t expect to find more mistakes, the people said.
The new irregularities show the lengths to which former WorldCom executives went to hide the phone company’s deteriorating performance. Federal prosecutors are trying to build a criminal case against former Chief Executive Officer Bernard Ebbers and have already charged ex-Chief Financial Officer Scott Sullivan with securities fraud. He has pleaded not guilty.
New CEO Michael Capellas is trying to clean up WorldCom’s books to guide it out of bankruptcy this year. The Clinton, Miss.-based company filed for Chapter 11 protection in July after initially revealing it had hidden $3.85 billion in costs. The people familiar declined to give details on the new errors.
WorldCom spokeswoman Claire Hassett declined to comment. A lawyer for Ebbers, who resigned from the company in April 2002, didn’t return a call or e-mail seeking comment. Ebbers has denied wrongdoing.
As part of WorldCom’s drive to keep its WorldCom Group data unit looking profitable, executives shifted $3.3 billion of expenses onto the books of the MCI Group consumer long-distance phone unit in 2001, people familiar said. The size of WorldCom’s restatement won’t be affected by the cost shifting.
An e-mail sent to Ebbers by MCI’s then-Chief Operating Officer Wayne Huyard was ignored, The Wall Street Journal reported earlier Monday. Parent-company executives including Ebbers owned more shares in the data unit than they did in MCI. Both businesses trade publicly.
WorldCom in June said it would restate results for 2001 and the first quarter of 2002 because it improperly recorded as capital investments $3.85 billion in expenses from using rivals’ networks. WorldCom in August boosted the estimated restatement to $7.18 billion and in November said the tally might exceed $9 billion.
WorldCom this month announced plans to wipe $79.8 billion off the recorded value of its assets, the most ever at one time for a U.S. company.
Four other former WorldCom executives have pleaded guilty to criminal charges and are cooperating with prosecutors.